Every business has expenses it incurs to operate that business. The cost of running the business is subtracted from its gross sales to determine how much profit the business has made. This procedure is done once a year, and is used to pay income taxes to federal and state governments.

Definition

A tax write-off is any legitimate expense that is “ordinary and necessary” to operate that business. All costs that are made for the purpose of carrying on a business are “tax write-offs,” deductions that are subtracted from sales to arrive at the business’s profit.

Importance

Being able to take as many tax write-offs as possible is beneficial to a business, since write-offs are deducted from income to calculate the profit made, and a business must pay both federal and state income tax based on profit. The more profit a business makes, the more it is required to pay in taxes.

Typical Tax Write-offs

General tax write-offs for businesses include the costs of inventory, office supplies and equipment, payroll, rent or building expenses, property taxes, insurance, advertising, and vehicle expenses. Some businesses will have unique costs, such as a newspaper publisher who must pay the cost of printing the paper.

Business vs. Personal

It can sometimes be difficult to keep business and personal expenses separated, especially for businesses that work out of a home. But, to take a legitimate income tax write-off, all business expenses must be kept separate from personal expenses. For example, if a car is used for both personal and business purposes, the mileage for each must be recorded, so at tax time only the mileage used for business (or the percent of vehicle expenses used for business) can be written-off of taxes.

Keep Accurate Records

In the event of an IRS audit, it is extremely important to have recorded documentation for all tax write-offs. Keep receipts for all business-related purchases. To track vehicle expenses and mileage, office supply stores sell small booklets that can be kept in the vehicle to easily write down beginning and ending mileage each time the vehicle is used for business.

About the Author

Dan Keen is the publisher and editor of a county newspaper in New Jersey. For over 30 years he has written books and magazine articles for such publishers as McGraw-Hill. Keen holds a degree in electronics, was chief engineer for two radio stations and taught computer science at Stockton State College.